Jakarta. Economic growth has stayed above 5%. Secure jobs have not.

Every morning before sunrise, Arif Rahman loads between 500 and 900 pieces of tofu onto the back of his motorcycle and weaves through the villages of Bekasi, an industrial district east of Jakarta. By mid-morning, he has finished his rounds, selling tofu door to door and to neighborhood food stalls. If business is good, he takes home around Rp130,000 ($7) for a day's work.

Eight years ago, his mornings looked very different. The 30-year-old worked in quality control at an automotive components factory, part of Indonesia's vast manufacturing belt that has long powered the country's industrial ambitions. Then came layoffs. The company, citing financial losses and efficiency measures, dismissed 20 workers at once. Arif was one of them.

"I've entered my thirties," he said. "I'm pessimistic that another factory would hire me."

Southeast Asia's largest economy continues to post enviable growth rates. Yet beneath those headline figures, factory layoffs are mounting, middle-class households are shrinking, and many displaced workers are being forced into lower-paying informal employment.

Indonesia's economy has expanded by more than 5% annually for the past three years, growing 5.05% in 2023, 5.03% in 2024, and 5.11% in 2025. Growth accelerated further to 5.61% year-on-year in the first quarter of 2026.

Ordinarily, such numbers would signal a buoyant labor market. Instead, layoffs have continued to spread across manufacturing and other industries.

According to the Manpower Ministry, more than 254,000 workers have lost their jobs between 2023 and May 2026. The trend has steadily worsened: 64,855 layoffs were recorded in 2023, rising to nearly 78,000 in 2024 and more than 88,500 last year. Another 23,470 workers lost their jobs in the first five months of 2026 alone.

Arif said he has yet to receive the severance pay he believes he is legally entitled to. The company offered workers only about half of what they calculated was owed, citing bankruptcy and restructuring. The workers rejected the offer, and negotiations remain unresolved.

His tofu business now covers daily expenses for his wife and child, but little more.

"It is enough for food and my child's pocket money," he said. "But thinking about the future, it isn't enough. Everything keeps getting more expensive while our income stays the same."

The Missing Middle Class and Jobless Growth
Economists argue that Indonesia's challenge is no longer the pace of growth but its quality.

Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies (CELIOS), said Indonesia has lost roughly 10 million middle-class citizens over the past decade, with another 1.1 million slipping out of the middle-income bracket during the past year alone.

The culprit, he argues, is premature deindustrialization—the weakening of manufacturing before the sector has matured enough to sustain productivity, wages and employment.

"The problem is not that growth is too low," Bhima said. "The problem is the quality of that growth."

As manufacturing weakens, so too does household purchasing power. Middle-class consumers buy fewer cars, fewer appliances, and fewer manufactured goods, creating weaker demand for precisely the industries that once generated stable employment.

Indonesia has hardly lacked investment, but employment has failed to keep pace. Realized investment rose nearly 13% last year to Rp1,931 trillion ($107 billion), driven by downstream processing, infrastructure projects, and natural resource development, according to the Investment Ministry.

Investment created roughly 2.71 million jobs in 2025, only modestly above the 2.46 million recorded the previous year—a slower increase than investment itself.

For Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (CORE Indonesia), this increasingly resembles "jobless growth." Rather than simply chasing larger investment figures, he argued, policymakers should reward projects that create formal employment.

"Fiscal incentives should be tied not only to investment value but also to the number of workers companies hire," he said.

Indonesia's industrial strategy, he added, must move beyond exporting processed commodities toward developing higher-value manufacturing capable of absorbing larger numbers of workers. Stronger protection against dumping, alongside lower logistics and energy costs, would also help domestic manufacturers compete more effectively.

Others see the investment climate itself as part of the problem. Wijayanto Samirin, a senior economist at Paramadina University, said businesses remain reluctant to expand because of regulatory uncertainty, slowing corporate credit growth and weakening manufacturing activity. Indonesia's manufacturing Purchasing Managers' Index stood at 46.9 in June, indicating continued contraction.

He also pointed to exchange-rate volatility and disruptions in global supply chains as additional burdens on industry.

"The layoffs are largely the result of a weakening business climate that accelerates deindustrialization and reduces purchasing power," he said.

Much of Indonesia's recent capital inflow has flowed into capital-intensive sectors such as mining, mineral processing, and data centers. These industries generate exports and productivity gains but employ relatively few workers.

The Lost Generation
As investment shifts toward capital-intensive industries requiring fewer employees and more specialized skills, opportunities for first-time job seekers have become increasingly scarce. 

Didik J. Rachbini, rector of Paramadina University, said Generation Z faces the toughest entry into the labor market because employers have become increasingly cautious about hiring inexperienced graduates.

Universities, he argues, still struggle to produce graduates whose skills match employers' immediate needs, forcing companies to spend additional time and money on training. In an uncertain economy, many choose simply not to recruit.

Public policy analyst Agus Pambagio describes the situation as a persistent mismatch between education and labor-market demand.

"There is still a mismatch between labor absorption and unemployment," he said. "Until that is resolved, new graduates will continue to struggle."

The Central Statistics Agency (BPS) reported the national open unemployment rate at 4.68% in February 2026. Among people aged 15 to 24—the cohort largely comprising Generation Z—the unemployment rate was far higher at 16.36%. About 13% of Indonesia's Gen Z population was either unemployed or not participating in education or training. West Java, the Riau Islands, and Papua recorded the highest youth unemployment rates among the country's provinces.

Whether the cause is premature deindustrialization, jobless growth, weak demand, an uncertain business climate, or a mismatch of skills, such debates feel distant to Arif.

He has accepted that his future probably lies outside Indonesia's formal manufacturing sector. Every morning, he returns to the road with his motorcycle loaded with tofu instead of factory tools.

Despite the setback, he remains remarkably optimistic. His advice to fellow workers facing layoffs is simple: do not despair.

"There may be wisdom behind the hardship," he said.